India takes on China at another battlefront: A Sri Lankan airport

India is in advanced talks with Sri Lanka to operate the airport on the southern tip of the island, where China has invested heavily as part of its One Belt One Road (OBOR) project.

The Doklam conflict between India and China amply highlighted the fight between the two countries for supremacy in South Asia. India is strongly asserting against China which is trying to build strategic assets in the garb of infrastructure projects all around India. It is the continuation of the old Chinese 'String of Pearls' policy that aims at ring-fencing India. But now India seems to be determined to fight China on all fronts in South Asia.

The latest battlefield is in Sri Lanka where China has leased a port. Chinese access to a port in the Indian Ocean is a direct threat to India's security. In May, Sri Lanka had rejected Chinese request to dock a submarine on its port. Emboldened after the Doklam conflict, Sri Lanka is now trying to balance China with India.

That's why it is planning to hand over a Chinese-built airport to India right next to the port China has leased. Effectively, India is challenging China's advance into Sri Lanka.

Four years ago, Sri Lanka built Mattala Rajapaksa International Airport (MRIA) in Hambantota, 250 km south from Colombo, with Chinese assistance of $190 million, more than 90 per cent of the total cost. Today, MRIA is running into losses and Sri Lanka is unable to pay back dues to China’s EXIM Bank. Ironically, Sri Lanka may now hand over the airport to India so that it can repay the Chinese loan.

India is in advanced talks with Sri Lanka to operate the airport on the southern tip of the island, where China has invested heavily as part of its One Belt One Road (OBOR) project.

Not far from the loss-making airport built with Chinese loan is a vital link in the OBOR project—the deep-sea port of Hambantota. China recently got a 99-year lease for running the Hambantota Port.

Sri Lanka’s estimated national debt is $64.9 billion, of which $8 billion is owed to China—this can be attributed to the high interest rate on Chinese loans. For the Hambantota port project, Sri Lanka borrowed $301 million from China with an interest rate of 6.3%, while the interest rates on soft loans from the World Bank and the Asian Development Bank are only 0.25–3%. Interest rates of India’s line of credit to the neighbouring countries are as low as 1%, or even less in some cases. Sri Lanka is facing debt crisis or a ‘debt trap’, as some scholars describe it.

Sri Lanka is currently unable to pay off its debt to China because of its slow economic growth. To resolve its debt crisis, the Sri Lankan government has agreed to convert its debt into equity. This may lead to Chinese ownership of the projects finally and allow it to put them to military use.

Sri Lanka's handing over the loss-making airport to India will be a move against China's tightening noose of debt. For India, it will be a strategic challenge to China. It would send the message that China cannot have a free run in South Asia where India wants to be a dominant power.

India's offer to develop infrastructure in Myanmar is also seen as a move to counter China's influence in the neighbouring country. After India stared China down at Doklam, it hopes smaller countries in the region would no longer be hesitant to balance China with India.

China told Reuters that it was not aware that Sri Lanka was considering allowing India to manage the airport. China also put in a bid to operate the facility, but the two sides failed to agree on financial terms. "China hopes the relevant country does more to play a constructive role in increasing mutual trust and cooperation between nations in the region and promoting regional peace, stability and development," the Chinese foreign ministry said in response to an email from Reuters.

But China must be perturbed at India's challenge to its 'String of Pearls' policy which has gone unchallenged for a long time. If India is able to turn around the airport, it can encourage other smaller countries in the region to move from China to India.